Guidelines

Communicate your answers simply and clearly.

 Show all your work in Word or Excel documents, or both.

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 Use Calibri 12 font.
 Put your name on each page.
 Do not retype the problem.
 Do not include a table of contents.
 Clearly structure your response to correspond to the structure of the assignment (e.g.,
Problem 1, Problem 2 . . .).
 Show your calculations for each problem, as applicable.

There are 12 questions. Check that you have a complete assignment.

Unless specifically stated in the problem, assume income taxes and GST do not apply to
transactions.

FMAC 503 Individual Assignment #1 version A

Question 1

The statement of financial position for Bedrock Inc. showed the following at December 31,
2022.
ASSETS
Current
Cash $50,000
Accounts receivable $100,000
Less: allowance for doubtful accounts (10,000) 90,000
$140,000

SHAREHOLDERS’ EQUITY
Common shares $80,000
Retained earnings 60,000
$140,000

During 2023, there were $5,000,000 of sales. 40% were collected in cash at the time of sale.
60% of sales were on account. $30,000 of accounts were written off as uncollectible.
Management estimates the allowance for doubtful accounts at 1% of outstanding accounts
receivable. Bad debt expense for 2023 amounted to $157,000. There were no other expenses.

Required:
1. Prepare the transactions worksheet.
2. Calculate the net realizable value of accounts receivable at December 31, 2023.
3. Calculate 2023 cash flow from operations.

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Question 2

The following transactions took place in ABBA Limited during the year ended December 31,
2023:
Purchase #1 2,000 units @ $0.50
Purchase #2 1,000 units @ $1.00
Purchase #3 500 units @ $2.00
Purchase #4 1,000 units @ $2.50

There was no opening inventory. On December 31, 2023, 2,500 units were sold for $3.00 each.

For specific identification purposes, the items sold were:

1,200 units of purchase #1
300 units of purchase #3
1,000 units of purchase #4

Required:
1. (3 marks) Calculate the cost of ending inventory under each of the following costing
methods:
a. FIFO
b. Specific identification
c. Weighted average

2. (3 marks) Complete the following calculations:

Spec. Wtd.
FIFO Ident. Avg.
Sales
Cost of goods sold
Gross profit

3. (1 mark) In a period of falling prices, does FIFO or weighted average costing produce the
lowest net income?

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Question 3

The year-end inventory of Zylo Inc. consisted of one unit of the following items, at cost and net
realizable value:

Category Cost NRV

A $2,000 $2,100
B 3,000 2,900
C 9,000 8,000

Required:
1. ( 3 marks) Calculate ending inventory based on:
a. Cost
b. LCNRV by category
c. LCNRV by total inventory

2. (2 marks) If you wanted to maximize the company’s net income using IFRS, which option
would you choose?

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Question 4

Assume Donna West is an employee of West Co. She is paid her monthly salary of $10,000 on
December 31, 2023. Personal income taxes are deducted and withheld by the employer
amounting to $4,000. Canada Pension Plan (CPP) deductions of $495, union dues of $20,
employment insurance premiums (EI) of $130, and private health insurance premiums of $100
are also deducted.

West Co. is required to contribute the following amounts to the applicable agency by January
15 of the next year:
CPP 100% of employee deductions
EI 140% of employee deductions
Private health insurance 200% of employee deductions
Post-retirement benefits $1,000

Required:
1. (2 mark) Prepare a transactions worksheet to record the events on December 31 and
January 15.
2. (1 marks) Calculate the amount of compensation expense that would be reported on West’s
2023 income statement.
3. ( 1 marks) Calculate West’s cash outflow on January 15, 2024.

Question 5

Zenith Corp. entered a finance lease agreement with Acme Leasing Ltd. on July 1, 2023. Zenith
Corp. agreed to pay Acme an initial payment of $80,000 on that date and annual payments of
$315,343.41 on June 30 of each of the next three years to lease a piece of equipment with a fair
value of $800,000. The interest rate implicit in the lease agreement was 15%. The company’s
fiscal year end is December 31.

Required: Calculate the 2025 statement of cash flow effects for Zenith Corp.

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Question 6

Assume that on December 31, 2022, the share capital of Ward Rentals Ltd. consisted of 100,000
common shares with a total issued value of $300,000, and 500, 5% non-participating preferred
shares with a total issued value of $100,000. Retained earnings totalled $700,000.

The preferred shares are cumulative. There are three years of preferred dividends in arrears.

On April 30, ten thousand common shares were issued for $20,000. No preferred shares were
issued or repurchased in 2023. On November 30, 1,000 common shares originally issued for
$6,000 were repurchased for $6,000 and cancelled.

2023 net income totalled $150,000.

On December 31, the board of directors declared a cash dividend of $70,000, payable on
January 31, 2024.

Required: Prepare a statement of changes in equity for the year ended December 31, 2023.
Calculate the amount of preferred dividends in arrears, if any.

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Question 7

The following list of accounts is taken from the records of Western Sales Ltd. at December 31,
2023:

Account
Accounts payable $18,000
Accounts receivable 353,000
Accumulated depreciation, PPE 281,000
Admin. salaries and benefits expense 134,000
Advertising expense 900
Allowance for doubtful accounts 200
Bad debts expense 14,120
Cash 12,400
Commissions and benefits expense 80,000
Common shares 58,600
Cost of goods sold 693,000
Corporate tax liabilities 6,200
Depreciation expense 96,900
Dividends, common shares 100
Dividends, preferred shares 600
Gain on disposal of PPE 10,800
Income taxes expense 11,704
Interest expense 20,800
Inventory 235,000
Operating bank loan 204,000
Non-current bank loan 692,000
Preferred shares, non-cumulative 8,600
Prepaid insurance 2,000
Property, plant, and equipment 1,463,572
Occupancy expense 67,000
Retained earnings, opening 750,056
Sales 1,178,000
Warranty provision 1,200
Warranty expense 23,560

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Required:
1. (4 marks) Using the format below, prepare a note to the financial statements listing
applicable 2023 expenses in nature of expense format. Show how you have grouped the
expenses to agree to the amounts shown on the income statement as cost of goods sold,
selling and marketing expenses, and administrative expenses (see requirement 2). Assume
the following amounts:

(Increase) decrease in inventory of goods ($111,250)

Merchandise purchases 804,250

NOTE X: EXPENSES CLASSIFIED BY NATURE

Operating expenses organized by nature of expense

are as follows:

Type of expense

Represented by:
Cost of goods sold
Selling and marketing
Administrative

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2. (4 marks) Using the format below, prepare an income statement for the year ended
December 31, 2023.

Sales
Cost of goods sold
Gross profit
Operating expenses
Selling and marketing
Administrative
Income from operations
Other income
Inc. before interest and inc. tax
Interest expense
Income before inc. taxes
Income taxes
Net income

Basic EPS (see requirement 3)

3. (3 marks) Calculate and present 2023 EPS at the bottom of the income statement. Show
your calculations. Assume the following:

# of shares Commo Preferred

n
January 1, 2023 50,000 5,000
Issued July 1 8,800 1,000
December 31, 2023 58,800 6,000

Common shares were issued for $1,600. Preferred shares were issued for $3,500.

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4. (3 marks) Using the format below, prepare a statement of changes in equity for the year
ended December 31, 2023.
Ret.
Earning
Share capital Total
s
Common Pref.
share
shares s Total
Balance, Dec. 31, 2022 750,056
Net income
Transactions with shareholders

Balance, Dec. 31, 2023

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5. ( 8 marks) Using the format below, prepare a statement of financial position at December
31, 2023. Assume the following:

Current portion of non-current borrowings $69,200

Assets
Current

Non-current

Liabilities
Current

Non-current

Shareholders’ Equity

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6. (8 marks) Using the format below, prepare a statement of cash flows for the year ended
December 31, 2023. Assume the following:
Increase in non-current borrowings $159,200
Cash from customers 1,167,830
Cash paid for other operating expenses 90,310
Cash paid to employees 214,000
Cash paid to suppliers 805,250
Income taxes paid 8,604
Interest paid 20,800
Payment of dividends 700
Purchase of PPE 384,116
Proceeds from sale of PPE 109,900
Shares issued 5,100
C&CE deficiency at beginning of year 109,850

Operating activities

Investing activities

Financing activities

Represented by
Cash
Operating bank loan

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Question 8

The 2023 financial statements of Lexus Ltd. are as follows:

Statement of Financial Position Income Statement

At December 31, 2023 For the Year Ended December 31, 2023

Assets
Current Sales (all on credit) $2,000
Cash $10 Cost of goods sold 1,200
Accounts receivable 300 Gross profit 800
Merchandise inventory 600 Operating expenses 200
Prepaid expenses 10 Income from operations 600
920 Interest expense 40
PPE, at carrying amount 1,480 Income before income taxes 560
$2,400 Income taxes 168
Liabilities Net income $392
Current
Accounts payable 500 Statement of Cash Flows
Borrowings 200 For the Year Ended December
Notes payable 100 31, 2023
800
Non-current Cash from operating activities $650
Borrowings 190 Cash used by investing activities (468)
990 Cash used by financing activities (422)
Shareholders’ Equity Net change in cash (240)
Pref. shares, 10% (6 shares) 60 C&CE at start of year 50
Common shares (30 shares) 100 C&CE deficiency at end of year ($190)
Retained earnings 1,250
1,410
$2,400

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 Statement of Changes in Equity
For the Year Ended December 31, 2023
Ret.
Share capital Earnings Total
Common Pref.
shares shares Total
Balance, Dec. 31, 2022 $60 $100 $160 $1,470 $1,630
Net income 392 392
Transactions with s/h
Dividends – common (606) (606)
Dividends – preferred (6) (6)
Balance, Dec. 31, 2023 $60 $100 $160 $1,250 $1,410

Additional information from the December 31, 2022 statement of financial position:
Accounts receivable $280
Merchandise inventory $600
PPE, at carrying amount $700
Ending retained earnings $1,470
Preferred shares (6 shares) $60
Common shares (30 shares) $100

Market price per common share at December 31, 2023 was $25. Dividends are paid in cash at
each year end. There are no preferred dividends in arrears.

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Required:
1. (5 marks; ½ mark for each calculation) Complete the following table. Show your
calculations. Round ratios to one decimal place.

2023 2022
Industry
average Lexus Lexus
i. Current ratio 1.9:1 2.6:1
ii. Acid-test ratio .9:1 .9:1
iii. Operating cash flow ratio 1.6:1 1.4:1
iv. Number of days to complete revenue cycle 151 244
v. Debt to shareholders’ equity ratio .3:1 .3:1
vi. Gross profit ratio .35:1 .35:1
vii. Net profit ratio .14:1 .15:1
viii. Times interest earned 40 times 78 times
ix. Basic earning per share ratio $7.03 $8.80
x. Price-earnings ratio 4:1 2.7:1

2. (15 marks) Using the ratios, evaluate the 2023 financial performance of Lexus Corporation.
Horizontal and vertical analyses are not required.

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Question 9

The report accompanying the financial statements of Nissen Shed Builders Ltd. states:

On the basis of information provided by management, I have

compiled the statement of financial position of Nissen Shed
Builders Ltd. at December 31, 2023 and the statements of income,
changes in equity, and cash flows for the year then ended, and
Note 1 which describes the basis of accounting applied in the
preparation of the compiled financial information, and additional
notes with supplemental information.

Management is responsible for the accompanying financial

information, including the accuracy and completeness of the
underlying information used to compile it and the selection of the
basis of accounting.

I have performed this engagement in accordance with Canadian

Standard on Related Services (CSRS) 4200, Compilation
Engagements, which requires me to comply with relevant ethical
requirements. My responsibility is to assist management in the
preparation of the financial information.

I did not perform an audit engagement or a review engagement,

nor was I required to perform procedures to verify the accuracy or
completeness of the information provided by management.
Accordingly, I do not express an audit opinion or a review
conclusion, or provide any form of assurance on the financial
information. Readers are cautioned that the financial information
may not be appropriate for their purposes.

Required: The owner of the company, Steve Nissen, wants to approach a bank for a large loan.
Advise Steve.

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